Month: April 2016

FIXING ECONOMIC AND POLITICAL INEQUALITY

Since President Teddy Roosevelt took on the mantle of trust buster at the turn of the 20th century, government regulation through anti-trust laws and other regulatory mechanisms has been recognized as the only way to counterbalance corporate power and individual wealth.

However, since the 1980s, the corporate and financial elite of the country has increasingly exercised influence and control over our federal and state governments and their policy making and regulatory functions. This has undermined government as the counterbalance to the power of the elite. The tools they use to gain influence and control are campaign contributions and spending, lobbying, and the revolving door.

As a result of their economic and political power, the rules of our economy have been shifted to favor wealthy corporations and individuals. This has undermined the middle class and led to growing inequality in incomes, wealth, and opportunity. [1] (See my post Economic Inequality is Due to Shifts in Political and Marketplace Power for more detail.)

A return to the policies of the 1950s and 1960s would go a long way toward stopping runaway inequality and beginning to rebuild the middle class. A return to these policies is clearly not radical, although some may argue that it would be based on the current landscape of politics and power. Key elements of the post-World War II policies that led to broadly beneficial economic growth and decreasing inequality were:

  • A truly progressive tax system;
  • Workers with bargaining power, primarily through unions, who were better able to balance the power and interests of employers;
  • Financial regulation that prevented speculation, manipulation, and international or offshore transactions that hurt or destabilized our economy; and
  • Fair corporate and estate taxes that required payment of a reasonable share of taxes by these entities.

In addition, we need to create new policies to address newly emergent factors that have shifted power in our economy and politics:

  • Full disclosure and stricter regulation of campaign contributions and spending;
  • Trade agreements that actually benefit US workers and our economy; and
  • Strict regulation and disclosure of lobbying and the movement of personnel through the revolving door between private sector jobs and government positions.

Institution of these seven policies would enhance economic equality and bolster the middle class. They would also reverse growing political inequality that is undermining our democracy. This would shift power away from wealthy individuals and corporations and back to average Americans.

I encourage you to contact your representatives in Congress and/or in your state government to let them know what you think needs to be done to address the economic and political inequality in the U.S. today.

[1]       Kuttner, R., 1/14/16, “The new inequality debate,” The American Prospect (http://prospect.org/article/new-inequality-debate-0)

ECONOMIC INEQUALITY IS DUE TO SHIFTS IN POLITICAL AND MARKETPLACE POWER

The debate over the causes of and remedies for growing economic inequality in the US has been in the forefront of the presidential campaign. Economists and most politicians have traditionally argued that economic inequality was the inevitable result of technological change, workers’ education and skill levels, and globalization. However, a stronger and stronger sentiment – maybe even a consensus – is growing that income and wealth inequality is driven by inequalities in political and marketplace power. Even many economists are now acknowledging the important effects of shifts in political and marketplace power. [1]

It is becoming increasingly clear that market outcomes and the rules of the marketplace reflect political and marketplace power, not economic efficiency or inevitability. Marketplace rules are set by government policies. Since 1980, government policies have shifted power from workers to employers through weakened labor laws and lax enforcement of them. Free trade policies have allowed jobs to move overseas, meaning that US workers must compete with low-paid foreign workers. Policies have also shifted power from consumers to corporations through weakened regulations and lax enforcement of consumer protection laws, including of anti-trust laws.

Simultaneously, political power has shifted from average citizens and voters to wealthy elites and their corporations. Spending on election campaigns has grown dramatically. Campaign finance laws now allow wealthy individuals and corporations to spend unlimited amounts of money on campaigns for public offices. As a result, elected officials are more beholden to wealthy individuals and corporations than ever before.

Political power has also been shifted through lobbying, the revolving door, and legal strategies. Corporate lobbying of public officials has grown substantially. This means the voices of the big corporations are much louder and more frequently heard in policy making arenas than before. Their voices are much louder than the voices of average citizens. The revolving doors between regulated industries and government regulators or policy makers has ever greater numbers of people passing through them. Corporations have pursued legal strategies in the courts that have given them increased power, including a right to freedom of speech that was previously reserved for individuals. Their court strategies have also blocked and greatly delayed regulation, including on issues of public health and safety.

Business and environmental regulations have been weakened. Anti-trust laws have effectively ceased to limit market size and concentration. Simultaneously, corporations have developed new ways to exploit market power. Consolidations of pharmaceutical corporations have resulted in unjustifiable skyrocketing drug prices for existing drugs, while changes in patent laws and market manipulations delay the arrival of generic drugs in the marketplace.

These shifts in marketplace and political power are mutually reinforcing. As a result, our markets unjustifiably reward the rich and powerful. For example, Wall Street traders are making millions and sometimes billions of dollars in incomes but are not adding much – if anything – of value to the overall economy. Similarly, the very high pay for corporate CEOs is well above the value they add to the economy.

Taxes have been reduced for wealthy individuals and corporations. The well-off have seen dramatic tax cuts on their high incomes, on unearned income (i.e., gains, dividends, and interest on investments), and on their wealth (primarily through cuts in the estate tax). Many large, profitable corporations, particularly large, multi-national corporations, avoid paying any taxes at all. Meanwhile, the relative tax burden on work and workers has grown.

Leveraged buyouts result in financial manipulators making millions while workers lose jobs or take pay and benefit cuts. Retirees also lose benefits or taxpayers have pay them through the government’s Pension Benefit Guaranty Corporation. Globalization benefits multi-national corporations and the financial industry while hurting workers and national sovereignty.

Economists are now acknowledging that in many cases economic size and power are undermining market efficiency rather than enhancing it as the economies of scale argument traditionally promised. Furthermore, marketplace power starkly contradicts the core assumption of economics, namely that markets are perfectly competitive.

The corporate and financial elite’s agenda of deregulation, tax cuts, and free trade has been promoted as creating jobs and strengthening our economy. The data clearly show that this has not been the case. Economic growth is certainly no greater now than it was in the 1950s and 1960s. Meanwhile, economic volatility, insecurity, and inequality are clearly greater.

My next post will describe what we can and should do to stop runaway economic inequality, which will also contribute to rebuilding the middle class.

[1]       Kuttner, R., 1/14/16, “The new inequality debate,” The American Prospect (http://prospect.org/article/new-inequality-debate-0)